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Argentina’s election: Cleaning up after Cristina

WT24 Desk

FOR eight years Cristina Fernández de Kirchner has beguiled, enraged, entertained and divided Argentines. She is one of Latin America’s most popular presidents, but her combative style has alienated some of her citizens and much of the outside world. Constitutionally unable to run again in Argentina’s general elections, the first round of which takes place on October 25th, she will be succeeded by a duller figure. The two leading candidates to replace her, Daniel Scioli of her Peronist Front for Victory and Mauricio Macri, Buenos Aires’s mayor, have none of her pizzazz. But either would be a great improvement.

True to her Peronist pedigree, Ms Fernández has hoarded power and suppressed dissent. She has bent the central bank to her will, muzzled the government’s statistics institute and bullied the media. She has tried, less successfully, to suborn the independence of the judiciary.

She leaves an economy in even worse shape than it looks. Like other commodity producers, Argentina is suffering from falling prices for its exports. To this, Ms Fernández has added woes of her own making. The government keeps the peso overvalued. It taxes soyabeans and other exports, thereby punishing the country’s most competitive producers. It has repelled foreign capital by defaulting on debt and refusing to settle with its creditors. To husband foreign exchange, it restricts imports. Ms Fernández distracted Argentines with lavish spending on welfare and energy subsidies. That trick will not work for much longer. The country is in danger of running out of reserves; the budget deficit this year is likely to be 6% of GDP; inflation is estimated at 25%; and growth is absent.

The next president will need to escape disaster. That will mean letting the peso fall, reducing subsidies and ending the stand-off with creditors. In the short run, the volte face will hurt. Spending cuts, plus higher interest rates to contain inflation, are likely to push the economy into recession. Only as exports pick up and capital flows back will confidence, and growth, gradually return.

All the main presidential candidates would change the economy’s course, though it is hard to tell from their campaigns just how they would go about it. Running as Ms Fernández’s heir, Mr Scioli suggests that he does not need to make abrupt changes. Despite being a speedboat racer in his youth, he wants to change the economy’s course only gradually. Sergio Massa, a Peronist who has fallen out with Ms Fernández and is running third in the polls, is somewhat more forthright about the need for adjustment. But it is Mr Macri, an economic liberal, who comes closest to admitting the scale of the problem. He acknowledges the need for a big devaluation and seems readier than his rivals to remove capital controls.

Choose Macri-economics

That is one reason to prefer Mr Macri to his two Peronist rivals. The other is the prospect that he would undo the damage Ms Fernández has inflicted on Argentina’s politics. His team promises an “institutional shock”, a change of practice that would make the presidency more accountable and strengthen other bodies, including the central bank and the judiciary. That is the sort of change that Argentina needs if its democracy and economy are to mature.

It will not happen under Mr Scioli. His defenders say that he will be better at dealing with Congress, which will be dominated by his allies. The others, they say, will get nothing done. That is a risk. But the risk of obstruction is a bad reason to pick a second-best president. Argentines should choose Mr Macri, according to The Economist.

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